The rationale behind volatility-weighted allocation strategies is to allocate risk evenly across a diversified set of assets in order to make the strategy robust to various macroeconomic configurations. As showed in figure 1, the assets may be classified into four main clusters:

Investors passively investing in High Yield bonds have caught a return of 10% in the US and 18% in the euro zone. Similarly, emerging bonds have returned around 16% since the start of the year. The causes of this risky bonds’ mania are well-known: faced with negative real yields on the so-called safe haven [...]

From 2010 onwards, the European investor has been facing a lasting financial insecurity. Peripheral Eurozone countries may default on their debt, as illustrated by the Greek debt restructuring. More worryingly, their sovereign debts have turned into risky assets, with a positive correlation to stocks. European banks are still undercapitalized and doubts persist on their solvency. [...]

Two major political events are looming and with no doubt will shape financial markets outlook until the end of the year:

The US presidential election will be held on 6th November. According to statistician Nate Silver and Obama’s contract on Intrade, Obama has a clear advantage in the battleground states which should lead him to victory. [...]

Archive for November, 2012

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